Economy: OECD predicts UK recession this year

Britain will sink into recession this year with contractions of economic output in both the third and fourth quarters, the influential Organisation for Economic Cooperation and Development said today.

The Paris-based OECD, releasing its latest set of economic forecasts, said the ongoing effects of the credit crunch and weakening housing market will cause the British economy - the world's fifth largest - to shrink by 0.3% in the current quarter and by 0.4% in the October to December period. It would thus meet a common definition of recession of two quarters of negative growth.

Recent figures showed the economy already ground to a halt in the second quarter of the year.

Shadow chancellor George Osborne said: "Not only is the British economy predicted to shrink in the next two quarters, but it is also the only economy not predicted by the OECD to see a recovery this year. All of our major competitors are predicted to see at least some growth by the end of the year."

The OECD said that Britain would fare worst amongst the Group of Seven leading economies. Until recently, Gordon Brown would regularly boast that Britain was the best performer among the G7, which also comprises Canada, France, Germany, Italy, Japan and the United States.

But the OECD did say the other economies would also suffer the effects of the credit crunch and high commodity prices.

The US will see growth slow to an annualised 0.9% in the third quarter and 0.7% in the fourth. Europe's biggest economy, Germany, will come to a standstill in the third quarter, the OECD said, and edge ahead just 0.1% in the fourth.

Jorgen Elmeskov, the OECD's acting head of economics, said financial market turmoil, housing market downturns and high commodity prices were continuing to bear down on global growth.

"The eventual depth and extent of financial disruption is still uncertain, however, with potential further losses on housing and construction finance being one source of concern," he said.

The OECD is forecasting the UK economy to grow by just 1.2% for the whole of 2008, well down on its earlier forecast of 1.8%. Last month the International Monetary Fund predicted the UK economy would grow 1.4% this year.